Turf wars

Thousands will be at the course. Millions more will watch on TV. This week is the highlight of the National Hunt season - the three-day Cheltenham Festival. But behind all the noise, colour and excitement, racing has rarely been in a worse state.

Amid accusations of suspect betting practices, last week top jockeys Kieren Fallon and Sean Fox were suspended for bad riding. And away from the track, a financial disaster could be about to hit the industry as a £307 million TV deal unravels.

Media company Attheraces, set up by Channel 4, BSkyB and Arena Leisure, has already paid about £100 million to racecourses over the past three years for the right to show live racing.

Attheraces aimed to make money from interactive gambling with people betting at home on races through their digital TVs or over the internet instead of going to a betting shop.

But the expected boom in revenues never materialised and Attheraces pulled the plug on the deal.

Frantic talks are continuing between Attheraces and the owners of racecourses such as Aintree, Cheltenham, Newmarket and Epsom.

If they can't revive the deal before March 29, it will collapse. 'We are hopeful that a deal will be negotiated,' said Attheraces spokesman Tom Earl.

'However, there is a lot of work to be done and there is a danger that we will go off the air.'

Blank screens are not the only fear. Without the TV cash, prize money for races such as the Derby will continue to be slashed and racecourses could be forced to hand back some of the TV riches they have already received.

Attheraces said: 'There is scope for rebates. If the deal collapses, there will be pressure on the courses to pay back a proportion of the money.' An industry insider added: 'It's a classic ITV Digital-style overpayment for media rights. And now the whole economy of the deal has collapsed.'

Some racecourse owners have already written off the deal and are looking for alternatives. One suggestion is that the bookmakers' own broadcasting channel, Satellite Information Services, which is screened in betting shops, would take its place. One investor said: 'This is a possibility, but it would be based on a subscription business model, not a ridiculous one predicated on betting revenues.'

Estimates vary on how much the racecourses will be hit. After ITV Digital collapsed, several Football League clubs went into administration. Could this happen to smaller racecourses?

'If you are Cheltenham, you might be all right,' said one observer. 'The smaller racecourses might not be.'

However, unlike football clubs, racecourses do not seem to have spent excessively in anticipation of future riches. Earl said: 'It would be a disaster if racecourses went under because of this, but they should not.'

A greater concern is the image of the industry as a whole. And the blame is being pinned on internet betting exchanges - forums where punters can meet and bet against each other without the intervention of bookmakers.

Greg Nichols, chief executive of the sport's governing body, the British Horseracing Board, said: 'Recent events have drawn further attention to the new and very real threat to the integrity of racing posed by betting exchanges, which leave it more vulnerable than ever to malpractice.

'Exchanges have opened the door for unlicensed, anonymous individuals, whether in Britain or abroad, to profit directly from a horse losing. They are having a damaging impact on racing's reputation.'

It is an argument dismissed as 'absolute nonsense' by Mark Davies, director of communications at the biggest betting exchange, Betfair.com, which handles £50 million of bets a week.

'It's like blaming speed cameras for speeding. All we are doing is making the industry more transparent,' he said.

'I don't believe racing is corrupt. If there are odd betting patterns, we know who those people are, where they live, where they bank. Bookmakers can't do that. But the bookies and the British Horseracing Board are dragging our name through the mud for their own commercial ends.'

Racing is partly funded by the Horserace Betting Levy Board, which takes ten% of bookmakers' gross profits. If

betting is down, the levy is down and racing suffers.

High Street bookmakers such as Ladbrokes and William Hill say that if they make £100 out of a punter, ten% goes to the Levy Board. If a Betfair punter bets £100 for a horse to lose, so acting like a bookmaker, he keeps it all bar three% commission he pays to Betfair. Betfair then pays ten% of that - 30p - to the Levy Board.

Bookmakers say the system is unfair, but Betfair says it is paying its way.

The decisive moment will come on April 8 when MPs report on the Government's draft gambling legislation. One of the issues to be decided is whether punters using betting exchanges are indeed acting as bookmakers.

If MPs rule that they are, every customer will have to be licensed by a magistrate and pay ten% to the Levy Board. 'That will end our business,' insisted Davies, 'but betting exchanges will still exist illegally and how will that benefit racing?'

And if horseracing doesn't clean up its act, Channel 4 racing pundit John McCririck warns that punters may stay away for good.